Banks’ bad debt surges by 36.4% to GHS 2.41bn at end-August as industry’s NPL ratio rise to 20%

Banks have reported a substantial increase in bad debt amounting to ¢2.416 billion in the first eight months of 2023. This represents a significant 36.4% surge compared to the previous year’s figures, which stood at ¢1.713 billion by the end of June 2023. These figures, as unveiled by the Bank of Ghana’s Income Statement for August 2023, comprise provisions for loan losses, depreciation, and other related factors.

The report underscores a concerning trend in the nation’s banking sector, revealing a notable deterioration in asset quality. This is evidenced by the significant uptick in the Non-Performing Loan (NPL) stock and Non-Performing Loan (NPL) ratio. The NPL ratio has soared to 20.0% in August 2023, a stark increase from 14.3% in the same period the previous year.

When adjusting for fully provisioned loan loss categories, the NPL ratio shows an even more pronounced escalation, surging to 9.0% from 3.8% during the same period of review. This surge can be attributed to the increasing presence of sub-standard and doubtful loans within the NPL stock.

The rise in the NPL ratio is primarily attributed to the NPL stock’s more rapid growth compared to the total loans within the reference period. The banking industry’s NPL stock has ballooned by 53.6% to reach ¢14.5 billion in August 2023, up from ¢9.5 billion in August 2022. This uptick reflects a combination of factors, including the revaluation of foreign currency NPLs and a deterioration in certain domestic currency loans.

A deeper analysis reveals that the private sector has shouldered the majority of the non-performing loans, accounting for 95.0% of the NPLs in August 2023. Although slightly lower than the 95.9% recorded in August 2022, this sector remains the dominant recipient of total credit. Meanwhile, the public sector’s share of NPLs has risen to 5.0%, marking an increase from the 4.1% recorded a year ago.